What Malaysia Needs to do to Move to a High-income Economy

Malaysia needs to open its services sector and improve the business environment for foreign investors if it wishes to move to a high-income economy, says a new infographic video released by the World Bank.

Malaysia’s Development Journey: What’s Next? looks at the role trade agreements have played in Malaysia’s development to date, and how they can assist it to move to a high-income economy in the future.

According to the video, between 1990 and 2014 Malaysia export value increased 680 per cent, from $30 billion to $234 billion, accounting for about 40 per cent of job employment.

Describing Malaysia as one of the most open economies in the world, the World Bank video, notes it is now targetting larger trade deals such as a Malaysia-European Union (EU) free-trade agreement (FTA), the Regional Cooperation Economic Partnership (RCEP), and the Trans Pacific Partnership (TPP).

Noting that new trade agreements also come with new challenges that need bolder domestic reform, Malaysia’s Development Journey: What’s Next? points out that the Malaysia services sector contributes just 51 per cent to GDP, compared to the Singapore services sector which contributes 74.9 per cent, slightly more than the world average of 74.4 per cent.

Malaysia SMEs, it notes, are woefully inefficient, with productivity only a fraction of that of large companies in every business sector.

To maximise the value of the new mega trade deals it is currently negotiating the World Bank says Malaysia needs to open up the services sector to raise economic efficiency and encourage private investment, while improving the overall foreign investment environment.

To drive innovation Malaysia needs to enhance competition across all sectors. This will lead to increased job opportunities and stimulate growth in the country’s most productive firms. Linking Malaysia’s SMEs to global markets and raising their level of  productivity also needs to be undertaken in order for Malaysia to move to a high-income economy, the World Bank says.

For the first half of 2016 (H1 2016) Malaysia reported the lowest year-on-year (YoY) FDI growth of any Asean member country. On a quarter-on-quarter (QoQ) basis Malaysia inbound FDI dropped 41.33 per cent – from RM15 billion ($3.72 billion*) to just RM8.8 billion ($2184 billion*) – while for H1 2016 it recorded a meager 6.36 per cent increase over the same period in 2015 (See: Asean H1 2016 FDI Winners & Losers)


Feature video uploaded to YouTube by World Bank


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